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Short of funds, hyperlocal delivery firms eye merger with bigger rivals

Wednesday, November 13, 2019, 14:05 Hrs  [IST]
HBI Staff | Mumbai

According to Mint, Milk-delivery startups, the recent entrants in the hyperlocal market, are looking to merge with bigger rivals due to their inability to raise large sums. “The smaller milk and grocery delivery startups are finding it challenging to independently scale without significant equity funding. There will likely be continued consolidation in the space,” said Ankur Pahwa, partner and consumer internet leader, EY India. For instance, grocery unicorn BigBasket is in advanced discussions to acquire subscription-based milk-delivery platform DailyNinja, which counts Sequoia Capital and Matrix Partners as investors, said two people aware of the development, requesting anonymity. DailyNinja has been struggling to raise growth funds for over six months, said the first person, adding that the startup could be sold for about Rs 100 crore. Likewise, Gurugram-based Milkbasket, which runs an app-based, inventory- led model to supply milk, has also been struggling in its efforts to raise the USD 30-50 million with few investors willing to commit as much, said an investment banker aware of the firm’s plans.

 “The lack of any near-term profit visibility for these firms is a major investor concern,” he added. Milkbasket had so far raised 
USD 26 million from Kalaari Capital, Blume Ventures and Unilever Ventures. For larger-entrenched incumbents in the hyperlocal delivery space, milk-delivery startups are good bet as they cater to sticky customers as milk is consumed daily. In fact, Bengaluru-based Doodhwala had to shut down its operations last month. In the process, it helped its customers migrate to FreshToHome. BigBasket did not reply to emails seeking comment, while Milkbasket declined to comment. A DailyNinja spokesperson denied the development. The recent developments highlight the increasingly difficult battle for survival in this space, despite the popularity of the services offered by the likes of Milkbasket and DailyNinja, which served 80,000-90,000 customers daily. The challenge, in fact, lies in competing with mature and wellfunded rivals, such as BigBasket, Grofers, Flipkart and Amazon, making it a low-margin business for smaller firms.

 “Given the nascent stage of this space, startups will need to find deep pockets to make long-tenured investments since unit economics will take a long time to evolve,” said Niren Shah, managing director and head, Norwest Venture Partners India. Norwest, an early backer of Swiggy, had also acquired SuprDaily for an undisclosed amount last year.

 Consolidation may also be the result of Flipkart’s and Amazon’s push to enter the hyperlocal delivery space. “Hyperlocal delivery has also matured with the arrival of large, deep-pocketed e-commerce and food-tech players with a strong logistics network. So, smaller players are finding it hard to sustain their businesses. Unless they can add greater share of private labels and increase average order values, economics will be difficult to achieve,” said EY’s Pahwa. Amazon, which launched a two-hour window for delivering grocery and other essentials a few months ago, has committed USD500 million to sell third-party and private-label food products over five years. Flipkart’s board has approved an investment of up to Rs 2,500 crore for its foray into the food-delivery business. 

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